My view

Third sector spotlight

Are charities investing too little in essential support activities, improving their governance, and managing organisational risks?

Holding charities to account

Although charities shouldn’t be spending most of their funds on support operations or infrastructure, the balance may have swung too far in the opposite direction in the glare of public opinion.

Third sector risks are high profile and charities are under public scrutiny. Charities are under pressure to spend the bare minimum on support activities in the belief that donors take a dim view of any charity that cannot show the overwhelming majority of its income goes straight to the good cause.

An often used metric by charity supporters and donors is to review how much of the income received by a charity supports frontline activities, versus how much is spent on marketing, fundraising and back office administration.

How fair and how good a measure is this, and what impact does it have on the performance of a charity?

This question is explored at length in an article in the new Spring issue of stronger, the ALARM journal.

The stronger article reviews research that suggests charities spending more on overheads may be better run and more efficient. It argues that given the significant growth and complexity of the sector, now is the time for charities to take a more professional and robust approach to the management of the risks to frontline operations.

ALARM’s ambitions for the third sector

ALARM recognises that models of public service delivery are changing, and increasingly public and community services are being delivered through third sector organisations, including charities, voluntary and community groups. The ALARM Board has been exploring ways to follow the risk and become more relevant to the third sector and attract new members.

There are challenges to this ambition, not least that most charities are very small. Nearly half (48%) have annual incomes under £10,000 and only three per cent have incomes above £1 million. It is rare to find individuals within a charity whose job is solely dedicated to risk management or insurance. These functions usually fall within the remit of the chief executive, finance manager, or to the board of trustees, who will be volunteers.

Also, the sector is reluctant to invest in areas such as governance and risk management. However, headline events and the resultant fall in public trust may cause some to recognise the need for improvement in these areas. The Charity Commission’s declaration of strategic direction for the future may also provide some impetus.

The development of this sector has been identified as a focus area for ALARM’s Board and we have started to make headway.

This includes:

Engagement with some infrastructure charities and key representative bodies. ALARM has provided support on risk management, such as speakers at trustee events, webinars and guest blogs.

Development of an ALARM training course aimed at trustees and senior managers. It raises awareness of the benefits of risk management and provides those attending with basic skills and practical advice and templates.

Working with ALARM sponsors who have an existing presence in the third sector market, running join events with the aim of increasing ALARM’s visibility.

Third sector involvement

There is still a great deal of work to be done and the ALARM Board is looking for volunteers to join in extending ALARM’s reach and relevance to the growing third sector. This is an exciting and interesting area of work. If you would like to get involved, please email: colette.dark@alarmrisk.com or admin@alarmrisk.com.